UFOC
The original documents were scanned as an image. The original file can be downloaded at the link above.
Sample UFOC
TABLE OF CONTENTS
ITEM PAGE
1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES.............................................................1
2 BUSINESS EXPERIENCE.................................................................................................................................................................3
3 LITIGATION....................................................................................................................................................................................................4
4 BANKRUPTCY......................................................................................................................................................................................54
5 INITIAL FRANCHISE FEE...............................................................................................................................................................5
6 OTHER FEES.............................................................................................................................................................................................§
7 INITIAL INVESTMENT............................................................................................................................................................«H
8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES.........................................±?I
9 FRANCHISEE'S OBLIGATIONS.....................................................................................................................................241
10 FINANCING..........................................................................................................................................................................................532fi
11 FRANCHISOR'S OBLIGATIONS......................................................................................................................................232
12 TERRITORY...........................................................................................................................................................................................592
13 TRADEMARKS.................................................................................................................................................................................32-3J
14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION.........................................5322
15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS............................................................................................................................................................3432
16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL.....................................................3SM
17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION..................33J
18 PUBLIC FIGURES............................................................................................................................................................................444Q
19 EARNINGS CLAIMS.....................................................................................................................................................................4340
20 LIST OF OUTLETS.......................................................................................................................................................................4240,
21 FINANCIAL STATEMENTS.................................................................................................................................................4441
22 CONTRACTS..........................................................................................................................................................................................44^2
23 RECEIPT........................................................................................................................................................................................................4#4J
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Exhibits
1. List of State Agencies/Agents for Service of Process/State Effective Dates
2. Standard Franchise Agreement
3. Charter Franchise Agreement
4. Development Rights Agreement
5. Preliminary Agreement for Charter Franchisees6. List of Franchisees 7r|L List of Franchisees Who Have Left the System
StL Financial Statements
9tJL Manual Table of Contents
4-Or2i Training Curriculum
44-rlO. Additional Disclosures and Riders Required by State Franchise Laws
APPLICABLE STATE LAW MIGHT REQUIRE ADDITIONAL DISCLOSURES RELATED TO THE INFORMATION IN THIS OFFERING CIRCULAR. THESE ADDITIONAL DISCLOSURES, IF ANY, APPEAR IN EXHIBIT 4-W&
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Ifeml THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
The franchisor is Gold's Gym Franchising, Inc. (called "we" or "us" in this offering ' circular). "You" means the person or entity acquiring a franchise. If you are a corporation, partnership, or other entity, all of your owners must sign one of our forms of Guaranty, which means that some or all provisions of the Standard Franchise Agreement (Exhibit 2) or Charter Franchise Agreement (Exhibit 3), depending on the form of Guaranty signed, also will apply to your owners. (See Item 15)
We incorporated in Delaware on August 13, 1999. We do business as Gold's Gym Franchising, Inc. and Gold's Gym. Our principal business address is 358 Hampton Drive, Venice, California 90291. In a reorganization completed on August 24, 1999 (the "Reorganization"), we acquired the assets and certain liabilities (including the Gold's Gym system and rights and obligations under existing Gold's Gym license and franchise agreements) of our predecessor, Gold's Gym Franchising, Inc., a California corporation which occupied the same principal business address (our "Predecessor"). A related company, Gold's Holding Corp. ("GHC"), acquired certain health clubs in the Reorganization and also has acquired and/or developed other Gold's Gym Facilities f defined helow^ since that time. As of the end of our most recent fiscal year, GHC owned and operated (directly or through subsidiaries) 1-37 Gold's Gym Facilities (defined below). (See Item 20) GHC's principal business address is the same as our address. Another related company is Gold's Gym Merchandising, Inc. ("GGM"), whose principal business address is 314 Sunset Avenue, Venice, California 90921. GGM licenses manufacturers and distributors to produce and sell to others (including our franchisees) sportswear, novelties, and other merchandise bearing the name "Gold's Gym" and/or certain other trademarks. Gold's Gym Licensing, Inc. ("GGL"), another related company whose principal business address is c/o Gold's Gym International, 2924 Telestar Court, Falls Church, Virginia 22042, owns the Marks and grants us and the other related companies the right to use and (where appropriate) sublicense them. (See Item 13)
If we have an agent for service of process in your state, we disclose that agent in Exhibit 1.
We grant franchises to operate, and (in certain areas) development rights to develop and operate, health clubs (called "Gold's Gym Facilities") offering various fitness, health, and exercise facilities, goods, and services under our trademarks, service marks, and trade names (the "Marks") and following our mandatory and suggested specifications, standards, operating procedures, and rules (the "System Standards"). In this offering circular, we call your Gold's Gym Facility the "Facility." You must operate the Facility from a site we approve (the "Site") and offer the products and services we specify.
The form of franchise agreement that you will sign depends on whether you are a Charter Franchisee and whether we grant you development rights.
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(1) Unless you are a Charter Franchisee (defined below), you will sign and operate your Facility under the "Standard Franchise Agreement." Except as noted in (2) below, all franchisees sign the Standard Franchise Agreement. Where applicable, this offering circular describes the differences between the Standard Franchise Agreement and the "Charter Franchise Agreement." However, references in this offering circular to "Franchise Agreement" alone apply to both the Standard Franchise Agreement and the Charter Franchise Agreement.
(2) We previously offered our existing franchisees the opportunity to renew their franchises early by converting from their old forms of franchise agreement or license agreement to the Charter Franchise Agreement. Many of these franchisees accepted our offer by submitting the required forms by the April 27, 2001 deadline.We call these franchisees who converted their agreements our "Charter Franchisees." A few of our Charter Franchisees have not yet completed the process of converting from their old fonns of agreement to the Charter Franchise Agreement for their existing Gold's Gym Facility or Facilities. (Only our Charter Franchisees from whom we received all required information by April 27, 2001 have the right to sign the Charter Franchise Agreement.) In addition, ifXf you are a Charter Franchisee and reqaesiwe are granting you another Gold's Gym Facility franchise, and we grant you that franchise within 3 years after the effective date of the original Charter Franchise Agreement, then you will sign athe Charter Franchise Agreement Cor a substantially similar agreementl for thefor this new franchise as well. Only our Charter Franchisees have the right to sign a Charter Franchise Agreement for new Gold's Gym Facilities, and they have this right only for this limited 3-year period.
(3) If you qualify, we might grant you the right to develop and operate a number of Gold's Gym Facilities within a development area (the "Area") under our Development Rights Agreement (Exhibit 4). We will offer development rights only to certain qualified candidates who already have signed, or who simultaneously will sign, one or more Franchise Agreements with us and only in certain areas of the country. Before you sign the Development Rights Agreement, we and you will agree to the Area, the number of Facilities that you must develop in the Area, and the timeframe within which you must develop them (the "Development Schedule"). fSee Item \2) You will sign our then current form of Franchise Agreement (which could differ from the Franchise Agreements described in this offering circular) for each Facility you develop.
Your Facility will compete with other health clubs and businesses that offer similar products and services, including other national chains. The market is developed but is expanding to satisfy the needs of health and fitness enthusiasts. Depending upon your Facility's location and demographics, certain high/low seasons exist. You will offer your products and services to the general public throughout the year.
Certain states have passed laws relating specifically to health clubs, including laws requiring postings concerning steroids and other drug use, limiting the supplements that health clubs can sell, requiring bonds if a health club sells multi-year memberships, requiring club owners to deposit into escrow certain amounts collected from members before the club opens (so-called "pre-sale" memberships), and imposing other restrictions on memberships that health
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clubs sell. In California (and possibly in other states), if you are constructing a new Facility and plan to rely on the proceeds of membership sales to build and equip the Facility, the offer and sale of those memberships could be considered the offer and sale of "securities" under state law. Other than these laws, there are no regulations specific to the operation of a Gold's Gym Facility, but you must comply with all applicable local, state, and federal laws that apply generally to all businesses. You should investigate these laws.
We, our Predecessor, or our or its related companies have operated Gold's Gym Facilities or similar operations since 1965, and we or our Predecessor have offered licenses or franchises for Gold's Gym Facilities since 1980. We have no other business activities (except as described above). Neither we nor our Predecessor, nor our or its affiliates or other related companies, have offered franchises or licenses in any other lines of business.
HeiiL2
BUSINESS EXPERIENCE
President and Director: Gene LaMott
Mr. LaMott has been our President, and one of our Directors, since May 2001 and was our Chief Operating Officer from February 2000 until May 2001. From June 1997 until February 2000, Mr. LaMott was a Divisional President of 24 Hour Fitness, Inc. in Portland, Oregon. From August 1989 until May 1997, he was the owner/President of Northwest Fitness, Inc. in Portland, Oregon, which owned and operated 7 Gold's Gym Facilities.
Chief Financial Officer: Randall R. Schultz
Mr. Schultz has been our Chief Financial Officer since October 2002. From August 1995 until October 2002, Mr. Schultz was the Vice President-Finance for America's Best Contacts and Eyeglasses in Pennsauken, New Jersey.
Senior Vice Presidentr-Ffftnchise Operations of Franchising: Luis Campalans
Mr. Campalans has been our Senior Vice President of Franchise OperationsFranchising since November 2003 and was our Vice President of International Franchising from March 2002 until November 2003. From July 1997 until December 2001, Mr. Campalans was Vice President of Haylans, Inc. in Upland, California.
Chairman of the Board of Directors: Peter C. Brockway
Mr. Brockway has been the Chairman of our Board of Directors since our incorporation in August 1999. Since January 1998, Mr. Brockway has served as the Managing Partner of Brockway Moran & Partners, Inc., a private equity firm in Boca Raton, Florida.
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Director: Mark A. Eidemueller
Mr. Eidemueller has been one of our Directors since our incorporation in August 1999. He also has been a Vice President of Brockway Moran & Partners, Inc. in Boca Raton, Florida since September 1998.
Item 3
LITIGATION
Southern Illinois Fitness. Inc. v. Gold's Gym Enterprises. Inc. (Case No. 94 CH 009363), Circuit Court of Cook County, Illinois, County Department, Chancery Division. The plaintiff in this case, a Gold's Gym Facility licensee, filed this action on October 18, 1994 alleging that Gold's Gym Enterprises, Inc., one of our Predecessor's affiliates ("GGE"), violated Illinois law by selling an unregistered franchise. The licensee sought a declaratory judgment that its license was a "franchise" under Illinois law, damages exceeding $250,000, and rescission of the license agreement. Without admitting any liability, the parties reached an out-of-court settlement in January 1996 in which the license agreement between the parties was terminated, GGE paid the plaintiff $4,500, and the parties signed mutual releases.
Lippel and De Angelis v. Gold's Gym International. Inc. et al. (California Superior Court, Case No. SC078507). On August 12, 2003, the plaintiffs, prospective franchisees who never were awarded a franchise, filed this action against us, Gold's Gym International, Inc. (our affiliate), Gene LaMott (our President), and several other parties, including one of our franchisees in California. Although the plaintiffs never signed a Preliminary Agreementpreliminary agreement or Franchise Agreement to acquire any rights, they allege that we breached a "promise" to grant them a franchise for a certain territory in California. The plaintiffs had proposed a site for a Gold's Gym Facility in an area adjacent to that territory. While we ultimately offered the plaintiffs a franchise to develop a Gold's Gym Facility at that site, the plaintiffs allege that we breached our "promise" by granting to another franchisee a franchise to be developed in the territory that the plaintiffs originally proposed (but which did not encompass their proposed site). The plaintiffs have sued for breach of contract, promissory estoppel, breach of the covenant of good faith and fair dealing, intentional interference with contract, intentional interference with prospective business advantage, and fraud. They seek unspecified compensatory and punitive damages, court costs, and attorneys' fees. The case is in the discovery phase. We and the other defendants refute any liability and plan to defendcontinue defending the action vigorously.
Moore's Fitness World Cincinnati. Inc. v. Eastgate Fitness. LLC et al. (Court of Common Picas of Warren County Ohio, Case No. 03 CV 61054). On June 12, 2003, the plaintiff, a company operating health and fitness clubs in the Cincinnati and northern Kentucky areas, filed this action against several of our franchisees that own Gold's Gym Facilities in the same areas, us, and Gold's Gym International, Inc. (our affiliate).The plaintiff claims that our franchisees violated the Ohio Deceptive Trade Practices Act when they allegedly used membership agreements, and engaged in membership sales practices, that did not comply with Ohio law.
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Alleging that our franchisees are our and our affiliate's "agents," the plaintiff claims that we and our affiliate likewise violated the Ohio Deceptive Trade Practices Act. In addition, the plaintiff alleges that we and our affiliate breached a non disclosure agreement with it and that all defendants committed fraud. The complaint seeks injunctive relief, unspecified compensatory and punitive damages, attorneys' fees, and court costs. The parties are engaging in discovery. We and the other defendants deny the allegations and are vigorously defending the action.
Other than these 32 actions, no litigation is required to be disclosed in this offering circular.
Item 4 BANKRUPTCY
In August 1994, a bankruptcy work-out group placed Randall Schultz, who is now our Chief Financial Officer, as the Treasurer and Vice President of Finance for The Hastings Group, Inc. ("Hastings Group"), a retail apparel company. The principal business address of Hastings Group was 222 N. LaSalle St., Chicago, Illinois 60601. On October 23, 1995, Hastings Group filed for protection under Chapter 11 of the United States Bankruptcy Code (In re Hastings Group. Inc. [The], United States Bankruptcy Court for the District of Delaware, Case No. 95-01307-PJW). On December 23, 1997, the bankruptcy court entered an Order Confirming Debtors' Plan of Liquidation Dated October 29, 1992, as amended, and Hastings Group's assets were liquidated. There never was any relationship between Hastings Group and the Gold's Gym system.
Other than this one action, no person identified in Item 1, and no officer identified in Item 2, of this offering circular has been involved as a debtor in proceedings under the U.S. Bankruptcy Code required to be disclosed in this Item.
Item 5 INITIAL FRANCHISE FEE
Initial Fee under the Standard Franchise Agreement
The "Initial Fee" that you will pay under the Standard Franchise Agreement depends on whether you are developing a new Gold's Gym Facility or continuing to operate an existing Gold's Gym Facility. The Initial Fee is payable in a lump sum when you sign the Standard Franchise Agreement and is not refundable under any circumstances.
(1) If you are developing a new Gold's Gym Facility under the Standard Franchise Agreement, your Initial Fee is $20,000.
(2) If you already operate a Gold's Gym Facility under a franchise or license agreement that is expiring soon or has expired, and are signing the Standard Franchise Agreement to continue operating your Facility under the Marks, you may choose the Standard
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Franchise Agreement's term. If you choose a 10-year term, your Initial Fee is $10,000 (which is one-half of our current Initial Fee). If you choose a 5-year term, your Initial Fee is $5,000.
Preliminary Agreement for Charter Franchisees
If you are a Charter Franchisee and you have not yet located, and/or we have not yet approved, a site for your now Gold's Gym Facility, or at any other time during our and your investigative and due diligence process, you must (at our option) sign the Preliminary Agreement (Exhibit 5).You must pay uo a $6,000 "Preliminary Fee" when you sign the Preliminary Agreement. We will fully apply the Preliminary Fee toward your first year Annual Fee if we and you sign a Charter Franchise Agreement.
You may terminate the Preliminary Agreement any time before signing the Charter Franchise Agreement. We may terminate the Preliminary Agreement: (a) for any or no reason within 30 days after we sign it; (b) if you do not select and we do not approve an acceptable Site, and/or you do not sign a Charter Franchise Agreement, within 90 days after we sign the Preliminary Agreement; (c) if you have made any material misrepresentation or omission in your franchise application; or (d) if you are convicted of or plead no contest to a felony or other crime or offense, or engage in any conduct, which in our opinion might adversely affect a Gold's Gym Facility's reputation or the goodwill associated with the Marks.
If you or we terminate the Preliminary Agreement during the first 30 days after signing it, we will refund (without interest) all of your Preliminary Fee. If you terminate the Preliminary Agreement after the initial 30 day period, or if we terminate the Preliminary Agreement under (b) above, we may keep $2,500 of the Preliminary Fee and will refund the rest (without interest). If we terminate the Preliminary Agreement under (c) or (d) above, we may keep the entire Preliminary Fee.
Only Charter Franchisees developing new Gold's Gym Facilities will sign Preliminary Agreements. If you are not a Charter Franchisee, you will not sign a Preliminary Agreement but instead will sign a Standard Franchise Agreement (even if you have not yet located and/or we have not yet approved your Facility's site).
Annual Fees under the Charter Franchise Agreement
Instead of paying the Initial Fee and Monthly Fees (as described in Item 6) due under the Standard Franchise Agreement, our Charter Franchisees will remain on their familiar program of Annual Fees.Annual Fees are not refundable.If you are a Charter Franchisee signing the Charter Franchise Agreement, then vou will pav Annual Fees instead of paying the Initial Fee described above and the Monthly Fee described in Item 6. Annual Fees are not refundable. Your first year Annual Fee is $6.000 and is due when you sign the Charter Franchise Agreement. The Annual Fees for the remaining years are described in Item 6.
If you are a Charter Franchisee and are converting from your old form of agreement to the Charter Franchise Agreement, your Anniversary Date under your old form of agreement remains the same under your new Charter Franchise Agreement. (See Item 17(a)) Your first year under the Charter Franchise Agreement will end on the first Anniversary Date after you sign the
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Charter Franchise Agreement. (For example, if your Anniversary Date under your old form of agreement is June 30 and you sign the Charter Franchise Agreement on September 30 to replace your old form of agreement, the first year of the term under your Charter Franchise Agreement will end on the following June 30, which is your original Anniversary Date. You keep the same Anniversary Date.) The second year's Annual Fee is due on the first Anniversary Date after you sign the Charter Franchise Agreement. (See Item 6) You owe no further Annual Fees until that Anniversary Date. (You would have paid an Annual Fee on the previous Anniversary Date under your old form of agreement that essentially will cover the Annual Fee due for the portion of the first year of the Charter Franchise Agreement's term that begins when you sign the Charter Franchise Agreement and ends on the following Anniversary Date.)
If you have paid us a Security Deposit under your old fonn of franchise or license agreement, we may retain the Security Deposit under the Charter Franchise Agreement. We may commingle the Security Deposit with our general funds and keep any interest on the Security Deposit. If we apply any of the Security Deposit toward your obligations to us during the Charter Franchise Agreement's term, you must replenish the Security Deposit to its original amount within 10 days after our notice to you. Within 45 days after the Charter Franchise Agreement expires or after you terminate the Agreement for cause, we will return any unused portion of the Security Deposit. However, if we terminate the Charter Franchise Agreement for cause or you terminate the Agreement without cause, we may keep the entire Security Deposit. (See Items 6 and 17) We do not collect a Security Deposit under any Franchise Agreement for a new Facility.
If you are a Charter Franchisee and already converted from your old form of agreement to the Charter Franchise Agreement, and if you request and we grant you a new Gold's Gym Facility franchise within 3 years after the effective date of the original Charter Franchise Agreement, then you will pay Annual Fees for that franchise instead of paying the Initial Fee described above and the Monthly Fee described in Item 6. Your first year Annual Fee for that franchise is $6,000, and the Annual Fees for the remaining years are described in Item 6.You will sign the Charter Franchise Agreement (or a substantially similar form of agreement) for that franchise, but that Agreement will not grant you any rights with respect to additional Gold's Gym Facilities-Charges for Training
We will train up to 2 people from the Facility (including you and your general manager) at no additional charge. Additional personnel may attend training (depending on our capacity) at your expense. We currently charge $500 per person per davsession. and this fee is not refundable. We describe our training program in Item 11.
Development Fee under the Development Rights Agreement
You must pay us a lump sum development fee when you sign the Development Rights Agreement. Your development fee is $10,000 multiplied by the number of Gold's Gym Facilities you agree to develop in the Area. We and you will determineinsert this fee jointly and insert it in the Development Rights Agreement before signing it. The development fee is not refundable under any circumstances, and we do not apply the development fee toward any Initial Fees for Facilities you develop. However, we periodically have agreed to apply development fees toward
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initial fees for newlv-developed Gold's Gvm Facilities if the developer agreed to an accelerated development schedule-Range of Initial Fees and Development Fees
During our most recent fiscal year, franchisees paid us initial fees under Franchise Agreements ranging from $6,000 to $20,350 and development fees under Development Rights Agreements ranging from $ 10,000 to $120,000.&LQ0jL=
Item 6 OTHER FEES
Name of Fee1
Amount
for first year, for second year, for third year, for fourth year, for fifth year, for sixth year, for seventh year, for eighth year, for ninth year, and for tenth year
Due Date
Remarks
Monthly Fee (Under Standard Franchise Agreement)
$l,000/month $l,050/month $l,103/month $l,158/month $l,216/month $l,276/month $l,340/month $l,407/month $l,477/month $l,551/month
15th day of each month (but see Note (2))
Represents a 5% increase each year. Charter Franchisees do not pay this fee
Recurring Annual Fee (Under Charter Franchise Agreement)
$6,300 for second year, $6,615 for third year, $6,944 for fourth year, and $7,292 for fifth year
On each Anniversary Date of the Charter Franchise Agreement (monthly if you choose or default)*
Represents a 5% increase each year. Franchisees operating under the Standard Franchise Agreement do not pay this
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Promotion Fund Contribution
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Currently $244 per month
15th day of each month (but see Note (2))
.AS v See Note (42)
Contributions to Regional Alliance of Franchisees
Amount that the Alliance determines; estimated at $100 to $500 per months
As the Alliance determines
Due only if there is a regional alliance of franchisees in which you must participate (see Item ■ 11)
Relocation Fee
Actual expenses we incur inspecting the proposed new site
Promptly upon receipt of our invoice
Due only if you request to relocate the Facility
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Name of Fee1 |
Amount |
Due Date |
Remarks |
|
Convention Fees |
Under $300 |
Approximately once per year |
You must pay the registration fees we periodically establish for annual conventions; we may increase this amount if our costs increase. You also must pay travel and living expenses for you and your personnel |
|
Training Fee |
Currently $500 per person per davsession |
As incurred |
Due only if you request initial training for more than 2 people or if we train any new manager or provide supplemental or refresher training during the Franchise Agreement's term |
|
Transfer Fee |
$2,500 for most transfers but $1,000 if transfer is of less than 50% of your ownership interests |
Before transfer is completed |
Payable before transfer of the Franchise Agreement, the Facility, or any controlling ownership interest in you or the Facility |
|
Renewal Fee (Under Standard Franchise Agreement) |
50% of initial franchise fee we then charge for new Gold's Gym Facility franchises (currently would be $10,000) |
Upon signing renewal Franchise Agreement |
|
|
Renewal Fee (Under Charter Franchise Agreement) |
Amount we then determine, up to 100% of initial franchise fee we then charge for new Gold's Gym Facility franchises (currently would be $20,000) |
Upon signing renewal Franchise Agreement |
|
|
Fee to Terminate Standard Franchise Agreement on Transfer Outside the System (Under Standard Franchise Agreement) |
150% of all Monthly Fees and Promotion Fund contributions due for unexpired contract term (or 100% if Facility will not operate as a "related business") plus amounts then due to Alliance, if any |
At or before transfer's closing |
Due under Standard Franchise Agreement only if you transfer to third party who will not operate the Facility as a Gold's Gym Facility |
|
Costs and Attorneys' Fees |
Will vary under circumstances |
As incurred |
Payable if we incur costs as a result of your noncompliance with Franchise Agreement or Development Rights Agreement |
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Name of Fee1 |
Amount |
Due Date |
Remarks |
|
Indemnification |
Will vary under circumstances |
As incurred |
You must reimburse us if we are held liable for claims arising from your Facility's operation or your breach of the Franchise Agreement or Development Rights Agreement |
|
Administrative Fees and Interest on Delinquent Payments |
$500 administrative fee for not notifying us of Facility's opening date within 5 days after opening; $75 administrative fee and interest at 1.5% per month or highest interest rate the law allows, whichever is less, on all overdue amounts |
As incurred |
|
|
Evaluation Fees |
Currently $250 to $350 per evaluation (not to exceed $500 per evaluation) |
When invoiced |
You currently must pay for our evaluations upon the Facility's relocation and if we re-inspect the Facility to determine whether you have corrected deficiencies. We currently conduct one evaluation per year at no charge, but we have in the past, and may in the future, charge the evaluation fee for these annual evaluations |
|
Fee for Evaluating Consideration to be Paid in Proposed Transfer (Under Standard Franchise Agreement) |
50% of costs that "Big Four" accounting firm charges to evaluate consideration's "true value" (or 100% if you elect not to move forward with transfer after receiving evaluation) |
As incurred |
Due under Standard Franchise Agreement only if the consideration for a proposed transfer is privately-held ownership interests or a note, and we seek to have that consideration's true value determined by an objective third party |
|
Supplier Testing Fees |
Approximately $500 to $5,000 |
As incurred |
Covers our out-of-pocket costs, including travel expenses and testing fees |
|
Participation in Industry |
Currently $400 for first year and $200 per year after that |
Annually |
You pay these fees directly to industry |
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Name of Fee1 |
Amount |
Due Date |
Remarks |
|
Organization |
organization(s) |
||
|
Liquidated Damages Upon Franchise Agreement Termination |
All unpaid license fees and Promotion Fund contributions for unexpired contract term |
Upon termination of the Franchise Agreement before it expires |
Payable only if we terminate for cause or you terminate without cause (other than in connection with a proposed transfer) |
Explanatory Notes.
(1) All fees are imposed and collected by and payable to us, except that the industry organization's fees are paid to that organization; the Alliance contributions are paid to the Alliance: the fees for evaluating the consideration to be paid in a proposed transfer are paid to the accounting firm; and we may direct you to pay the Promotion Fund contributions to an affiliate. All fees are non-refundable.
If you operate under the Standard Franchise Agreement, you must sign and deliver to us the documents we require to authorize us to debit your business checking account automatically for the Monthly Fee and other amounts due under the Standard Franchise Agreement or any related agreement between us (or our affiliates) and you. If you operate under the Charter Franchise Agreement, we may institute an automatic debit program only at your request or if you fail to make Annual Fee or other payments on time. Under our automatic debit program, you must make required funds available for withdrawal by electronic transfer before the due date.
(2) Your first Monthly Fee payment and first Promotion Fund contribution are due on the earlier of: (a) the date that you first open your Facility for business (or the Standard Franchise Agreement's Effective Date, if your Facility is open and operating on that date), an4-veuror rhl the 15th day of the 18th full calendar month following the Standard Franchise Agreement's Effective Date. Your second Monthly Fee payment and Promotion Fund contribution are due on the 15th day of the month-following the month in which the Facility epenedmonth. and all remaining payments are due on the 15th dav of the month. For example, if you open your Facility on June 5t5 (assuming that June 5 is less than 18 calendar months after the Effective DateV then your first Monthly Fee payment and Promotion Fund contribution are due on June 5, and your second Monthly Fee payment and Promotion Fund contribution are due on July 15. You only will onlyjnake 120 Monthly Fee payments during the Standard Franchise Agreement's 10-year term or 60 Monthly Fee payments during the Standard Franchise Agreement's 5-year term.
{) If you are a Charter Franchisee and are converting from your existing franchise
or license agreement to the Charter Franchise Agreement, your Anniversary Date under your old form of agreement remains the same under your new Charter Franchise Agreement. However, you will not pay any Annual Fees under the Charter Franchise Agreement until the first Anniversary Date after you sign the Charter Franchise Agreement, at which time you must pay the second year Annual Fee. (See Item 5)
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(D (4)-Under the Charter Franchise Agreement, we may periodically increase your
contribution by: (a) up to 25% over any 12-month period and up to 100% over the franchise term; and (b) up to a maximum contribution of $500 per month if 80% of our U.S. licensees and franchisees vote for the increase. Under the Standard Franchise Agreement, because its standard term is 10 years (rather than 5 years under the Charter Franchise Agreement), we may periodically increase your contribution, on 30 days' prior written notice to you, by: (a) up to 25% over any 12-month period; and (b)by any amount if 80% of the owners of all Gold's Gym Facilities located in the United States (including those that we, our affiliates, and our franchisees and licensees operate) vote for the increase, with the owners receiving one vote for each Facility that they own. You begin paying promotion fundPromotion Fund contributions on the date that your first Monthly Fee payment is due (see note (2) above). (See Item 11)
(4) ()-We may require you to contribute to a regional alliance of franchisees (an
"Alliance") for the geographic area in which your Facility operates. A majority vote of the Alliance's members will determine the contribution amount and the Alliance's expenditures. Each Gold's Gym Facility owner (including us and our affiliates, if applicable) will have one vote for each Facility that the owner operates within the Alliance's area. If you operate under the Standard Franchise Agreement, your Alliance contributions may not exceed $500 per month. (See Item 11)
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Item 7
INITIAL INVESTMENT
(based on new 25,000 square foot Facility)
|
Expenditures |
Estimated Amount or Estimated Low-High Range Under Charter Franchise Agreement |
Estimated Amount or Estimated Low-High Range Under Standard Franchise Agreement |
When Due |
Method Of Payment |
Whether Refundable |
To Whom Paid |
|
Initial Fee/Annual Fee (1) |
$6,000 |
$20,000 |
On signing Preliminary Agreement or Franchise Agreement |
Lump Sum |
Yes, if you sign the Preliminary Agreementhlp. |
Us |
|
Travel and Living Expenses During Training (for all attendees) (2) |
$4,000 to $6,000 |
$4,000 to $6,000 |
As incurred |
Lump Sum |
No |
Outside suppliers |
|
3 Months' Rent (3) |
$19,000 to $225,000 |
$19,000 to $225,000 |
As agreed in lease or sublease |
Installments |
No |
Landlord |
|
Deposit for Leasehold (3) |
$6,000 to $90,000 |
$6,000 to $90,000 |
On signing lease or sublease |
Lump sum |
Yes |
Landlord |
|
Leasehold Improvements (assuming no pool) (4) |
$625,000 to $1,250,000 |
$625,000 to $1,250,000 |
As incurred |
As Agreed |
No |
Outside contractors and suppliers |
|
Selectorized Equipment and Free Weights (5) |
$100,000 to $350,000 |
$100,000 to $350,000 |
As incurred |
As Agreed |
No |
Outside suppliers |
|
Cardiovascular Equipment (5) |
$100,000 to $400,000 |
$100,000 to $400,000 |
As incurred |
As agreed |
No |
Outside suppliers |
|
Signage |
$5,000 to $50,000 |
$5,000 to $50,000 |
As incurred |
As Agreed |
No |
Outside suppliers |
|
Initial Inventory and Supplies (6) |
$10,000 to $49,000 |
$10,000 to $49,000 |
As incurred |
As Agreed |
No |
Outside suppliers |
|
Advertising (7) |
$15,000 to $110,000 |
$15,000 to $110,000 |
As incurred before and after Facility opens |
As Agreed |
No |
Us and outside suppliers |
|
Miscellaneous Opening |
$4,0006.000 to |
$4t0006.000 to $40,00035.000 |
As incurred |
Lump Sum |
No |
Us and outside |
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|
Expenditures |
Estimated Amount or Estimated Low-High Range Under Charter Franchise Agreement |
Estimated Amount - or Estimated Low-High Range Under Standard Franchise Agreement |
When Due |
Method Of Payment |
Whether Refundable |
To Whom Paid |
|
Costs (8) |
SSO^OO^QM |
suppliers |
||||
|
Additional Funds - 3 Months (9) |
$20,000 to $150,000 |
$20,000 to $150,000 |
As incurred after Facility opens |
As Agreed |
No |
Us and outside suppliers |
|
TOTAL ESTIMATED INITIAL INVESTMENT (excluding real estate purchase costs) (10) |
$»44v00Q916.000 to S2.716.0002J21,000 |
$2.730.0002.735.000 |
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Explanatory Notes.
(1) Initial Fee/Annual Fee. We describe the Initial Fee and Annual Fee, and their non-refundability, in Item 5.
(2) Travel and Living Expenses During Training. This includes amounts for your personnel's lodging, transportation, and meals while they attend our management training school. (See Item 11) The estimates are for 2 to 5 individuals attending our management training school for 5 days and 4 nights.
(3) 3 Months' Rent and Deposit for Leasehold. The Facility's premises must be at least 15,000 square feet and (depending on your Territory) could be up to 26,000 square feet. However, the figures in the table reflect our estimates for a newly-constructed 25,000 square foot Facility. The Site may be in a rural or metropolitan area as long as we think there is a sufficient market in the area for the Facility's services. Rent and security deposit depend on the Site's size, condition, and location and demand for the premises among prospective lessees. However, rent can range from 250 per square foot per month for suitable warehouse space to $3 per square foot per month for prime space in a major metropolitan area.
YOU MIGHT CHOOSE TO PURCHASE, RATHER THAN RENT, REAL ESTATE ON WHICH A BUILDING SUITABLE FOR THE FACILITY ALREADY IS CONSTRUCTED OR COULD BE CONSTRUCTED. REAL ESTATE COSTS DEPEND ON LOCATION, SIZE, VISIBILITY, ECONOMIC CONDITIONS, ACCESSIBILITY, COMPETITIVE MARKET CONDITIONS, AND THE TYPE OF OWNERSHIP INTEREST YOU ARE BUYING. BECAUSE OF THE NUMEROUS VARIABLES THAT AFFECT THE VALUE OF A PARTICULAR PIECE OF REAL ESTATE, THIS INITIAL INVESTMENT TABLE DOES NOT REFLECT THE POTENTIAL PURCHASE COST OF REAL ESTATE OR THE COSTS OF CONSTRUCTING A BUILDING SUITABLE FOR THE FACILITY.
(4) Leasehold Improvements. Leasehold improvements (including floor covering for aerobics and other areas, wall treatment, ceilings, painting, and electrical, carpentry, and similar work) can range from $25 to $50 per square foot for a 25,000 square foot Facility. Actual costs depend on location, the condition of the premises being remodeled, economic factors, and the Facility's size. Counter fixtures can cost from $100 to $400 per linear foot. You must dedicate at least 2/3 of the total square footage to workout areas, and we suggest that you devote 1,100 to 3,500 square feet to aerobics. Depending on the lease terms, your landlord might cover some of these costs. If you already operate a health club (whether under the Gold's Gym name or otherwise), you probably will spend less.
(5) Selectorized Equipment. Free Weights, and Cardiovascular Equipment. Costs for selectorized equipment and free weights in a typical Facility range from $19 to $28 per square foot. Cardiovascular equipment costs approximately $1,000 to $3,000 for a standard bicycle, $10,000 for a bicycle with a built-in television, $4,000 to $5,000 for a treadmill, $1,000 to $3,000 for a Stairmaster machine, and $3,000 to $4,000 for an elliptical machine. We recommend that each Facility have at least 50 pieces of cardiovascular equipment. Your costs could vary from these estimates if you decide to lease, rather than purchase, this equipment. Depending on the lease terms, your landlord might cover some of these costs. If you already
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operate a health club (whether under the Gold's Gym name or otherwise), you probably will spend less.
(6) Initial Inventory and Supplies. An initial supply of printed materials, a desk, record books, and writing supplies will cost approximately $2,000 to $3,000. You also must buy approximately $5,000 to $40,000 of initial inventories of vitamins, supplements, and sportswear (including Gold's Gym merchandise) and at least $500 of branded Gold's Gym merchandise during each calendar quarter of the Franchise Agreement's term. You should not assume that you can buy inventories or other supplies on credit. We strongly recommend that you buy or lease a computer system, including a printer, modem, and monitor. We estimate that the costs for the hardware and bookkeeping software packages range from $3,000 to $5,000. (See Item 11)
(7) Advertising. The Franchise Agreement does not require you to advertise the Facility's grand opening, but we strongly recommend that you do so. Depending on the medium chosen, this advertising can cost up to $50,000. We also recommend (but do not require) that you advertise your Facility on a regular basis, spending 3% to 10% of your Facility's monthly gross revenue. You also must contribute to the Promotion Fund and possibly to an Alliance established in your area. (See Items 6, 8, and 11)
(8) Miscellaneous Opening Costs. This figure includes amounts for business licenses, legal and accounting expenses, utility costs ($300 to $8,000 per month, plus deposits), and workers' compensation, public liability, and other insurance ($3^0005.000 to $20.000.25.000. depending in part on gross membership sales during the year and the number of employees you have).
(9) Additional Funds - 3 Months. This item estimates your initial start-up expenses (other than the items identified separately in the table) for your Facility's first 3 months of operation, including miscellaneous supplies, inventory and equipment, laundry and janitorial services, payroll costs (but not any draw or salary for you), and other miscellaneous costs. These figures are estimates, and we cannot guarantee that you will not have additional expenses in starting to operate your Facility. Your costs depend on how closely you follow our methods and procedures; your management skill, experience, and business acumen; local economic conditions; the local market for your services; the prevailing wage rate; competition; and the sales level reached during the initial period.
(10) Total Estimated Initial Investment. We relied on our, our Predecessor's, and our and its affiliates' experience in operating Gold's Gym Facilities since 1965, and in licensing and/or franchising Gold's Gym Facilities since 1980, to compile these estimates. You should review these figures carefully with a business advisor before deciding to acquire the franchise. We do not offer financing directly or indirectly for any part of the initial investment. The availability and terms of financing depend on many factors, including the availability of financing generally, your creditworthiness and collateral, and lending policies of financial institutions. The estimate does not include any finance charge, interest, or debt service obligation.
THE INITIAL INVESTMENT RANGES PRESENTED IN THIS ITEM ARE TO CONSTRUCT NEW 25,000 SQUARE FOOT FACILITIES ACCORDING TO OUR SYSTEM STANDARDS.
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YOUR INITIAL INVESTMENT IS LIKELY TO BE LESS THAN THE RANGES PROVIDED IN THE TABLE IF YOU ARE A CHARTER FRANCHISEE OR ARE CONVERTING AN EXISTING OPERATION TO THE GOLD'S GYM SYSTEM. IN THESE CIRCUMSTANCES, YOU ALREADY HAVE INCURRED MANY OF THE EXPENSES NOTED IN THE TABLE, AND THEY ARE NOT LIKELY TO RECUR. CONVERTING OPERATIONS ALSO ALREADY HAVE DEVELOPED A MEMBERSHIP BASE THAT MIGHT MINIMIZE THE ADDITIONAL WORKING CAPITAL NEEDS OF THE NEW GOLD'S GYM FACILITY.
Estimated Initial Investments Under Development Rights Agreement
If you sign a Development Rights Agreement, then, in addition to the amounts required for each Facility you develop, you must pay the development fee described in Item 5. Except for the development fee and approximately $5,000 in working capital that you initially might need to begin looking for acceptable sites, no initial investment is required to begin operating under the Development Rights Agreement.
ItemS
RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
System Standards
You must operate the Facility according to our System Standards, which may regulate, among other things, the brands, types, and models of supplies, equipment (including computer equipment and exercise equipment), attachments, signs, and other items you use to operate your Facility; required or authorized products and services or product and service categories; designated or approved suppliers of these items (which might include or be limited to us and/or bur affiliates); and standards and procedures for memberships (including standard form membership agreements and our membership reciprocity programs). To maintain the quality of the goods and services that Gold's Gym Facilities offer and the reputation of the Gold's Gym franchise network, you must purchase or lease inventory, supplies, equipment, attachments, and similar items that meet our minimum standards and specifications and, if we require (but subject to your rights - described below - under the Standard Franchise Agreement), from suppliers that we designate or approve. We formulate and modify our System Standards based on our, our Predecessor's, our affiliates', and our franchisees' experience in licensing, franchising, and/or operating Gold's Gym Facilities. We will notify you in our Operating Manual of our System Standards and names of recommended (and, if we require, designated and approved) suppliers. Currently, the purchases and leases that you must make according to our System Standards represent approximately 85% to 95% of your total purchases and leases in establishing, and approximately 25% to 35% of your total purchases and leases in operating, your Facility.
Suppliers
We currently recommend suppliers for certain products that you must buy or lease to open and operate the Facility (including insurance companies and exercise equipment vendors), but we do not require you to deal with these recommended suppliers. You must buy Gold's Gym
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logoed merchandise from GGM's licensed vendors during the franchise term. These vendors can charge any prices they wish for these items. GGM currently receives royalties from these and other suppliers ranging from 1% to 5%, and administrative fees ranging from 0.1% to ±01%, of the total invoice price of those suppliers' sales to our franchisees. (See Item 16) We might receive other payments from suppliers based on their sales to you and other franchisees. We will contribute to the Promotion Fund at least 10% of all amounts that we receive from suppliers on account of their sales to you and other franchisees; otherwise, we can use any amounts we receive without restriction (unless the supplier instructs us otherwise) and for any purposes we deem appropriate. (The obligation to contribute to the Promotion Fund does not apply to payments that our affiliates receive in connection with their product licensing activities.) We also expect to receive better pricing from suppliers on certain items than our franchisees receive because of volume discounts and our ability to display or showcase items at Gold's Gym Facilities that GHC or its subsidiaries operate. The discounts we receive will depend on our negotiations with these suppliers. Neither we nor our affiliates or related companies received any revenue during 20022003 from selling products or services directly to our franchisees and licensees.
Except for Gold's Gym logoed merchandise and Website-related services (as described below), there currently are no goods, services, supplies, fixtures, equipment, inventory, computer hardware or software, or real estate for the Facility that you must purchase from us or designated or approved suppliers. (In other words, under our current guidelines, for all goods and services other than etffGold's Gym logoed merchandise and Website-related services, any supplier whose goods and services meet our System Standards is considered an "approved supplier.") Neither we nor any of our affiliates or related companies currently are designated, approved, or recommended suppliers for any items. However, we may in the future require you to buy or lease goods and services for your Facility only from suppliers that we designate or approve (which might include or be limited to us and/or our affiliates). If you wish to use or sell any product, equipment, or attachments, or to buy from any supplier (if we approve suppliers for that item), that we have not yet approved, then you must satisfy us that the item is equivalent in quality and functionality to the item it replaces and/or that the supplier is, among other things, reputable, financially responsible, and adequately insured for product liability claims. At our request, you must pay our actual expenses in reviewing your request, performing credit and other relevant investigations, and conducting equipment tests. (See Item 6) We will use our best efforts to notify you of our approval or disapproval within 90 days after receiving all information we require. Also, if we establish one or more strategic alliances or preferred vendor programs with nationally or regionally known entities who are willing to supply all or some Gold's Gym Facilities with products or services we designate (for example, beverages or equipment), then we may limit the number of approved suppliers with whom you may deal, designate sources that you must use, and/or refuse your requests if we believe that this action is in the best interests of the Gold's Gym network; however, we will use commercially reasonable efforts to ensure that any strategic alliance or preferred vendor program does not result in increased prices for the items that are the subjects of the alliance or program. If we determine at any time that a product or supplier no longer satisfies our System Standards, we may revoke our approval by notifying you and/or the supplier in writing.
If you operate under the Standard Franchise Agreement, then we may require you to buy or lease from suppliers that we designate or approve (which might include or be limited to us
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The original documents were scanned as an image. The original file can be downloaded at the link above.